Reply to: Mortgage Lenders - Please help!

[Freelancer Financials]

Contractor Friendly Lenders and Mortgage Brokers

Instinctively, most contractors go onto the web and Google "best buy mortgage deals” or “best low rate mortgages” and more often than not will find HSBC Bank, First Direct and ING leading the tables. However, the reality is that all the above lenders are not contractor friendly! The majority of contractors that come to us have previously obtained an “agreement in principle” only to be told once their application reaches the underwriter that their application has been declined because it is “out of criteria”. Some contractors are also let down by non specialist mortgage brokers who have approached the wrong lender or poorly packaged the application. Each failed application leaves a footprint on your credit record, this makes the next application more difficult and it is therefore essential to get it right from the start.

Lenders like HSBC, First Direct and ING have a simplistic view of what qualifies as relevant earnings for lending purposes. They also have a bias towards permanent employment as they view this type of borrower as less of a risk.

If you have been contracting through a limited company for more than 3 years, your application may be considered by some of the above lenders. In this case they will apply their standard multiple of income (3 to 3.5) to your personal salary and dividend drawings. But they are likely to also ask for 3 years accounts. For tax reasons, many contractors working through a limited company will draw a minimum salary and also restrict dividend payments to avoid higher rate tax. Although this is a perfectly reasonable tax planning strategy it also has the unintended consequence of reducing the amount a contractor is eligible to borrow under the standard criteria used by most mortgage lenders.

A small number of mortgage specialist like ourselves can secure competitive mortgages based on contract rates alone, irrespective of whether you are operating through your own limited company or an umbrella company. This means that you don’t have to rely on the traditional method of using accounts, which may not fully reflect the total earnings that you have at your disposal, for income verification on a mortgage application.

A Contractor Mortgage Specialist will present your mortgage application directly to senior underwriters so that your full earnings potential is taken into account - including earnings which are not paid out but retained within the company for tax planning purposes.

The following documentation is normally requested for “Contract based underwriting”:

• A copy of your latest CV
• A copy of your latest contract, confirming your contract rate (some banks may ask for the previous 12
months contract history)
• Some lenders request 3 months personal and business bank statements


I hope this information prepares Contractors for what lies ahead in getting a mortgage.

Best Wishes

[Peter Loew]

Have also used CMME and had no such hassles.

I'd be looking for another broker to be honest. anyway, you should have nother broker to make sure you're getting whole of market.

You're right. I've contacted Contractor Money and spoke to one of their brokers who have given me quotes for another lender and specified that there are two other lenders they deal with (aside from Halifax) who's criteria are contract value only and who meets my needs. They are ready to go pending the decision with Halifax.

[Epiphone]

Have also used CMME and had no such hassles.

I'd be looking for another broker to be honest. anyway, you should have nother broker to make sure you're getting whole of market.

[Jet Setter]

I've used Contractor Mortgages Made Easy. I think they deal with 4 or 5 banks and as long as you've been a contractor for more than 12 months there are not too many hassles. Even being an Aussie on Tier One didn't exclude me.

[Peter Loew]

I went first direct as well what they would loan me was based on contract daily rate / company profit they weren't bothered with what my actual personal income was, I actually thought most contractor friendly lenders did it on daily rate rather than actual personal income, may be rules have changed, I remortgaged to first direct in May last year.

Well this is interesting. This is different to ratewhore who says that he needed to produce accounts for First Direct - rules as you say, have probably changed since May last year.

Did you use a broker?

[Peter Loew]

FYI - Got an approval from the Halifax via Contractor Financial today. They apparently spot checked my accounts too and this presented no issues.

Well done. I should know by next week. I've done a bit of digging and I don't suspect there should be any problems. They apparently check details around your tax payments to ensure you're paying tax / filling out your tax forms etc.

[Scrag Meister]

Not sure if things have loosened up now following the lending restrictions over the last couple of years, but Abbey (now Santander) wouldn't touch me without 2 years accounts, and the rates on the couple that I did find via a broker were stupid. After 2 years got 0.49% above base for the term.

Loyalty means nothing either, I had been with them for 22 years and never missed a payment, just paid off one mortgage and looking to buy a place in London.

All the lenders are just more careful. They finally decided that checking a borrowers income was not such a stupid thing after all.

[Bumfluff]

I recently got a mortgage with First Direct, who I bank with. I just showed them 2 years accounts, as my current Ltd has only been running 2 years. No dramas at all, they weren't interested in the accounts from my previous Ltd at all.

To the OP, I wouldn't be overly concerned re the HMRC check, I would be more concerned in getting a mortgage based on contract rate. If you need the extra money that 4 x rate instead of 4 x income gets you, then you may be stretching yourself. Could you manage if you were canned next week?

I went first direct as well what they would loan me was based on contract daily rate / company profit they weren't bothered with what my actual personal income was, I actually thought most contractor friendly lenders did it on daily rate rather than actual personal income, may be rules have changed, I remortgaged to first direct in May last year.

[kanulondon]

FYI - Got an approval from the Halifax via Contractor Financial today. They apparently spot checked my accounts too and this presented no issues.

[ratewhore]

If you got a mortgage based on your accounts income, then you must either be inside IR35 and paying yourself 75% salary on your gross income, or paying yourself a higher income / dividend payment than (most?) contractors outside of IR35. All depending on how much you are borrowing of course.

Of course I can afford it. I'm on a good rate and can survive for at least 6 - 8 months (based on the Halifax offer) if I was terminated tomorrow. The only thing I might change is my salary; I may well increase it to a more comfortable amount.

Seriously though, how do you take out a mortgage based on your personal income? Could understand if you're paying yourself a high salary / dividend but I try to optimise my earnings the traditional Ltd way..

P

Not having a go at you PL, it was a general point.

In terms of proving income, if I remember, they looked at net profit. So I guess they could assume your max possible gross personal income = your net profit, regardless of how you split it.

My last mortgage was on personal income, which they worked out from the accounts. Doesn't matter if it's salary or divvy, it's all income.

I got an offset too, which I would recommend to any contractor...

[Peter Loew]

I recently got a mortgage with First Direct, who I bank with. I just showed them 2 years accounts, as my current Ltd has only been running 2 years. No dramas at all, they weren't interested in the accounts from my previous Ltd at all.

To the OP, I wouldn't be overly concerned re the HMRC check, I would be more concerned in getting a mortgage based on contract rate. If you need the extra money that 4 x rate instead of 4 x income gets you, then you may be stretching yourself. Could you manage if you were canned next week?

If you got a mortgage based on your accounts income, then you must either be inside IR35 and paying yourself 75% salary on your gross income, or paying yourself a higher income / dividend payment than (most?) contractors outside of IR35. All depending on how much you are borrowing of course.

Of course I can afford it. I'm on a good rate and can survive for at least 6 - 8 months (based on the Halifax offer) if I was terminated tomorrow. The only thing I might change is my salary; I may well increase it to a more comfortable amount.

Seriously though, how do you take out a mortgage based on your personal income? Could understand if you're paying yourself a high salary / dividend but I try to optimise my earnings the traditional Ltd way..

P

[ratewhore]

I recently got a mortgage with First Direct, who I bank with. I just showed them 2 years accounts, as my current Ltd has only been running 2 years. No dramas at all, they weren't interested in the accounts from my previous Ltd at all.

To the OP, I wouldn't be overly concerned re the HMRC check, I would be more concerned in getting a mortgage based on contract rate. If you need the extra money that 4 x rate instead of 4 x income gets you, then you may be stretching yourself. Could you manage if you were canned next week?

[Peter Loew]

Affordability based on contract rate. Had to supply current contract and a few months business & personal bank statements.

I don't think I had to send accounts, but wouldn't have been a problem anyway as I have 3 years now.

Interesting, I will give Contractor Money a call and quiz them - cheers.

FYI providing 3 yrs worth of accounts is not a problem, but it is not a true reflection on your earnings and many lenders can't see beyond your personal income, as opposed to your business income.

P

[Moscow Mule]

What is their lending criteria; did you have to produce your accounts?

Affordability based on contract rate. Had to supply current contract and a few months business & personal bank statements.

I don't think I had to send accounts, but wouldn't have been a problem anyway as I have 3 years now.

[Peter Loew]

Has anybody else got any advice / gone through similar experiences to this?

P